The U.S. dollar arbitrage cashflow leveraged loan market is gaining traction this summer, as illustrated by the pricing of Credit Suisse Asset Management's Atrium and Stein Roe & Farnham's Arum CLO both of which printed their triple-A notes at 43 basis points over three-month Libor (WAL 7.9 years) on Wednesday. Although a couple weeks ago several Street players were saying that the triple-C rated Adelphia Communications Corp. leveraged loans were "money good," the company - understood to be widely held by CLOs and one of the most popular credits in HY CBOs - continues to head toward Chapter 11.
Several investors are optimistic that recoveries, should Adelphia default, would be as high as 80 cents to the dollar area on its loans. Currently, several headline problems - including alleged accounting irregularities - are putting consistent price pressure on Adelphia's outstanding debt. Secondary loan trading is reportedly seen in the 78 to 82 cents area, and its high-yield bonds are now trading in the high 40s to low 50s area (down from 107 on March 15 on its 2010 bond).
Seen in the chart below, investors continue to put their money to work with the most experienced and established managers. But even with the top tier names, the road to pricing and closing a CDO is a long one these days. As CDO researcher Laurie Goodman of UBS Warburg summed up: "The Truth: Deals are taking much longer to close [and] in every deal investors are told the CDO is oversubscribed [and] ready to close next week." Nevertheless, volatility in the equity markets is reportedly bringing in new first loss investors and the Financial Accounting Standards Board's attitude toward CDOs appears to be improving, which hopefully will bring back several investors and top tier issuers that have been waiting on the sidelines for some direction.
Thomson IFR Markets expects the several leveraged loan deals to price within the upcoming four weeks (see chart below).